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Thursday, March 14, 2013

Attorneys advising commercial real
estate clients on interest rate swap transactions can benefit from the services
of a swap negotiator.

An Interest Rate Swap
Example

A
real estate attorney was contacted by a client wishing to enter into an interestrate swap
agreement.The description of the swap
indicated that it would be based on 1-month LIBOR (London Interbank Offered
Rate), have a 5, 7, or 10-year term, and that the notional amount would be
structured on a 20-year amortization schedule. As of March 5th,
2013, these breakeven swap rates would be 0.82% for 5 years, 1.26% for 7 years,
and 1.73% for 10 years. How do I best
advise my client and what does all this really mean?

LIBOR Explained

First,
the London Interbank Offered Rate or LIBOR rate is the average interest rate that
they would be charged if borrowing from other banks, or estimated by leading
banks in London.It is the primary
benchmark for short-term interest rates around the world.

Interest Rate Swaps
Explained

An
interest rate swap is a widely used financial derivative instrument in which
two parties agree to exchange interest rate cash flows.In its most common form, a commercial
borrower will pay an agreed fixed rate ("swap rate") in exchange for
the "swap counterparty" to take responsibility for payment of its
floating rate obligation.

In
the commercial real estate attorney’s interest rate swap example, the breakeven swap rates show the
fixed rate a commercial borrower would have to pay (not including any loan
spread) if they entered into a swap agreement where the borrower received the
floating 1-month LIBOR rate.

If
a commercial borrower enters into a 7-year interest rate swap, for example, they
would pay a fixed rate of 1.26% for 7 years and in return they would receive
interest payments based on the 1-month LIBOR rate.The borrowers interest payments would be
fixed while the money they received from the swap would be variable based on
the 1-month LIBOR rate.

The
swap also indicated that it will be quoted at mid-market breakeven. This means
the rates were reported at the average of the bid and ask prices of the market;
it is considered the fair market value.Additionally, as indicated in the interest rate swap description, the
swap settles interest payments each month.

How Swap Advisors Can
Help Attorneys

Advising
clients on interest rate swap transactions can create a new revenue stream for
attorneys.Although these contracts are
complicated financial transactions, a swap advisor can assist the attorney and
his client in translating the banks information into plain language, taking the
mystery out of a swap contract.Having
worked on the derivatives side of the bank, a swap advisor is the best defense
to negotiate pricing and terms while reducing interest expense. Without a swap
negotiator there is no transparency, and the bank can easily quote inflated
pricing without the borrower's knowledge.

Clients Save Hundreds
of Thousands of Dollars

By
partnering up with a swap advisor, the attorney’s commercial real
estate clients can save hundreds of thousands of dollars.How’s that?

Banks
have historically charged excessive, uncontrolled, and undisclosed fees on all
types of interest rate swap transactions allowing them to profit greatly by
adding these hidden fees. A swap advisor has access the same live data
and computer models as the bank, which creates transparency and thereby reduces
or eliminates banks’ undisclosed fees.By
working with a swap negotiator, clients gain peace of mind that their interest
rate swap transaction is being handled by an expert and that their bank has not
unfairly profited.

Attorneys
advising commercial real estate clients on interest rate swap transactions can
benefit from the services of a swap advisor by creating transparency, providing
peace of mind to their clients, and helping them save a
significant amount of money in these complicated financial transactions.

About Swap Negotiators
Located in Central Florida, Swap Negotiators provides advocacy, expertise, and
advice on interest rate swap contracts for commercial borrowers and works in
partnership with banks, commercial real estate attorneys, and mortgage brokers
to provide transparent pricing, valuations and ongoing support for the life of
a swap. Additional information about Swap Negotiators can be obtained by
calling (407) 264-7264 or by visiting www.swapnegotiators.com.